The European Union and Business Is it all

The European Union and Business Is it all we are told it is?

The EU - 1 Customs Union Common External Tariff Freedom of movement of people, product and capital Advantages - firms have free access to markets which would otherwise be Firms have access to most appropriate factors of production firms have access to large markets firms are protected from outside competition increased internal competition

EU - 2 Disadvantages -do we buy from lowest cost sources others have ‘open’ access to our markets sheltered from real competitive forces marketing strategies to suit all So what makes for international competitiveness? Trading blocs costs of production corporate cultures trading agreements clubs e. g WTO

International Competitiveness NAFTA Former Eastern Europe - new markets, opportunities, we have expertise to sell BUT - forms, political instability, low incomes, infrastructure, economic conditions E. g Russia - now changing laws on contract and property Developing Countries - NIC’s, low income countries, new world economic order - what of China?

Globalisation - 1 Growing importance of international trade rise of MNC’s global strategies/competitive advantage technical changes transports costs falling De-regulation liberalisation of trade standardisation of consumer tastes growth of emerging markets greater consumer awareness

Globalisation - 2 Think - competition, consumer expectations, economies of scale, location, mergers and market control other agreements e. g joint ventures, franchises MNC’s avoid protectionist policies, standardise markets, transfer capital, profits and skills balance of payments? Social responsibility? Interference in domestic affairs?

Impact on UK Business? Better motivated workers? Improved Industrial Relations? Improved Productivity? But – will labour costs increase? Will competitive ness be reduced? Will we lose trade? Will it force difficult economic decisions on us/ Is it value for money? What of the Single Currency?

Business and the Euro? What of those outside the ‘zone’? Might it impact on their export prices and may imports from within the ‘zone’ appear to less expensive? Will bigger units drive costs down and exclude the smaller producer? Will small suppliers of big business have to use Euros? Retailers in tourist areas? Subsidiaries of large firms? Banks?

Single Market- 1 Free access to market – 400 m and rising Access to factors – integration? Protection from external competition – CET Increased competition (Internal) Drive for efficiency and common standards Common currency Transparency of prices

Single Market - 2 Consumers will decide on price and nonprice factors BUT – will choice continue to expand? Will costs fall? Reduced market shares as competition increases = less economies of scale? Lack of efficiency as barriers protect? Can all tastes be satisfied – too diverse?

Single Market - 3 Will the marketing mix have to be changed? Problems with expansion beyond 25? So, does it have other less obvious power to change things? Greater freedom to move? End of tariffs, quotas, government subsidies, harmonise taxes, reduce transaction costs?

Single Market - 4 We now have to tender for large public contracts Will we move towards EU wide qualifications? Will decisions become more centralised? Will trade creation grow? – replace high cost domestic production with imports from a more efficient EU partner?

Single Market - 5 Will trade diversion increase – switch purchases to high-cost suppliers? If we are to increase economic welfare then internal producers will have to be as efficient as external producers? Does a Customs Union offer dynamic market conditions? Inelasticity of demand supply of commodities affected by CET Will EU reduce monopoly power?

Single Market - 6 Will EU increase drive for R and D and innovation? Will it push for economies of scale and what of diseconomies? Will growth be ‘balanced’ – peripheral v core areas? Structural problems? Increased mobility of labour Power of mergers/takeovers?

Single Market - 7 What of price fixing? What of predatory pricing? What of need to monitor corporate behaviour and application of Social Charter and Health and Safety? Where will free factors, such as labour and capital flow? Will EU unemployment rates vary? Can all new members afford to adopt social policies?

Single Market - 8 Signed 1986 Non-discrimination between imported and domestic goods Mutual recognition of products but acceptance of different standards Burden of Proof 4 big areas removal of frontier controls, technical barriers, public procurement and fiscal frontiers

Single Currency - 1 Needed to reduce uncertainty Bring harmonisation within monetary and fiscal regimes To reduce use of exchange rate manipulation Control money expansion within member states Competitive de-valuations

Single Currency - 2 Started with ERM – UK left in Sept 92. Maastricht Treaty decides on currency stability Monetary Union – designed to create common inflation and interest rates within member states Integrate financial sectors, so developing greater freedom of capital

Single Currency - 3 Membership based on meeting convergence criteria and accepting political rules Price stability – no more than 1. 5% above average of three best performing members Interest Rates – no more than 2% above average of the three member states with lowest inflation rates in previous year Gov deficit – no more than 3% of GDP.

Single Currency-4 Public Sector Debt Control – must not exceed 60% of GDP Reduced transaction costs Reduced uncertainty Price transparency Lower interest rates Lower inflation and unemployment Euro a powerful currency, greater parity with $, integration of financial markets, greater market liquidity, sounder fiscal policy

Single Currency - 5 Gains? – one catalogue price, one bank account, less formalities, stability, enhanced competition as prices remain stable, integrated bond markets, stricter discipline in tax issues BUT – at what costs? Loss of economic sovereignty Asymmetric shocks Lack of convergence – two speed Union?

Single Market - 6 Different labour market regulations Different growth rates What if one country gets out of synch? What if monetary flexibility required? Structural differences between countries – we export 52% to EU, Germany 56%, France 63%

Single Market - 7 Different housing market – mortgage debt in UK = 57% of GDP, 33% within rest of EU More vulnerability to oil price hikes? Can it be sustained as enlargement continues? Can Regional Policy cope

The future? Can the poorer nations be accommodated? Common Agricultural Policy? Greater political cohesion needed? Managing the Euro? Huge trading block? Trade-offs – winners v losers